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Pennsylvania

State deals with drillers raise brows

| Thursday, Sept. 2, 2010

The cash-strapped Rendell administration has leased nearly 150,000 acres of public forests and game lands to gas companies that paid $400 million to drill for natural gas.

Some critics say Pennsylvania taxpayers lost out on more money when administration officials privately negotiated two of the deals, worth $122.3 million, instead of seeking bids.

"Why wouldn't you be competitively bidding public resources?" asked Bill Belitskus, president of the Allegheny Defense Project, a nonprofit forest watch group. "That's criminal to me."

But it's legal in Pennsylvania, where an obscure clause in state law allows closed-door negotiations when drillers own leases next to state land.

State records the Tribune-Review obtained show that, in one noncompetitive agreement Jan. 7 with Texas gas company Anadarko, the state received $1,000 an acre for 2,300 acres in Sproul State Forest, in Centre and Clinton counties.

Two weeks later on Jan. 19, a public auction of 31,976 acres in Cameron, Clearfield, Potter, Clinton and Tioga counties generated $128 million, or about $4,000 an acre, for taxpayers.

In another noncompetitive deal reached May 10, the state leased Anadarko 33,000 acres in Centre, Clinton and Lycoming counties, at an average $3,650 an acre.

That was less than the $5,000 to $6,000 an acre paid to private landholders at the time, said Greg Wrightstone of Wexford, a petroleum geologist who authored studies on the Marcellus shale formation.

"Both of these private, no-bid lease schemes ... were consummated at less than market-bonus rates," Wrightstone said, calling the deals "a slap in the face to Pennsylvania taxpayers."

Rendell spokesman Mike Smith defended the deals. He said $1,000 an acre was the going rate for gas leases when Anadarko approached the administration about the Sproul tract in May 2009. Kent Moors of Duquesne University, an international expert on oil and natural gas policy, said that indeed was the case in May 2009, but things had improved by the time the deal was sealed eight months later.

The May 10 Anadarko deal, the company's second private deal, provided money to plug a hole in the state's 2010-11 budget. It ended the need for more leasing and minimized disruption to the environment because the company could access much of the land from adjacent leases, Gov. Ed Rendell said at the time.

"This is a responsible approach that meets our revenue targets and limits the impact of additional natural gas exploration," Rendell said.

Anadarko did not return calls for comment.

Although Anadarko held leases adjacent to those it negotiated privately, "other companies did as well, and my private discussions with various companies indicate that there would have been intense interest in bidding for these tracts, had they been made available in an open bidding process," Wrightstone said.

Drillers the Tribune-Review contacted were hesitant to criticize such deals openly. Some privately said the deals raised industry officials' eyebrows.

Rep. David Levdansky, D-Forward, is among lawmakers seeking a moratorium on leasing public land for drilling.

"Going forward, I feel very uncomfortable with the governor having the authority to sole-source (state forest lease) contracts," Levdansky said.

John Quigley, secretary of the Department of Conservation and Natural Resources, said he's comfortable with Rendell's pledge to halt wholesale leases in state forests. But Rendell leaves office at the end of the year.

"The big question is: What about the next administration?" Quigley said.

He warned further forest leases will endanger the state's sustainable forest management certification and 90,000 Pennsylvania jobs that depend on the state's marketing of timber as sustainably harvested.

Game Commission leases

The state Game Commission leased more than 5,000 acres across Elk, Center, Forest, Greene and Clearfield counties.

At rates ranging from $1,250 to $5,500 per acre, and royalty payments up to 27.5 percent, the commission received $2.3 million from leases last fiscal year.

The commission entered into a noncompetitive deal -- submitting votes by fax machines -- in May with Chesapeake Appalachia. Under the deal, the company will pay $2.4 million this year -- $5,500 per acre -- and 21 percent of royalties for access to game lands in Bradford County. However, it will get a $450,000 credit for deeding 95 acres to the commission.

Commission spokesman Gerald Feaser said Chesapeake's lease includes three islands in the Susquehanna River near Wyalusing. Chesapeake will access the gas without disturbing surface game lands, he said.

"They were drilling right next to us, and if we didn't act expeditiously, it could have resulted in surface damage," said Feaser.

He acknowledged that any damage to state game lands ultimately would be Chesapeake's responsibility but said: "Isn't it better to have no damage in the first place?"

Commissioner David J. Putnam said the commission granted the leases with a long-term outlook.

"I don't think it was wise to try to balance the state budget by selling off assets," he said. "You're not going to maximize the value by doing that. We are not going to do that."

The Game Commission uses lease proceeds for operations. The money does not go into the general budget.

Commission Chairman James J. Delaney said he voted for the expedited lease in part because the commission badly needs cash.

"I had some real concerns," he said, recalling a disaster caused by mining too close to the river. "These are tough decisions. I'll continue to be diligent."

Environmental concerns

Quigley and Rendell insist they structured the state forest leases with respect for the environment.

Quigley pointed to the most recent Anadarko lease.

"It minimizes the environmental footprint. Typically, in a 30,000-acre lease, we'd see 1,000 acres of surface disturbance. On this we will see less than 300 acres of surface footprint," Quigley said.

Even so, some scientists and environmental groups question the impact horizontal drilling technology may have on forests. The process uses millions of gallons of water and chemicals to fracture the shale, releasing gas.

Few Pennsylvanians see the drill sites along a remote stretch of Elk State Forest on Boone Mountain Road. Five drill sites -- four of them identified as Marcellus wells -- are clustered on a stretch of state road eight-tenths of a mile long in Elk County.

At two sites, green wellheads mark the bare yellow soil where rigs once tore into ground formerly covered with trees and ferns. At a third site, a bank of massive brine tanks and a pair of solar-powered heaters that draw moisture from the gas sit near the wellheads.

Nearby, an endless roar cuts through bird song as a huge rig surrounded by towering klieg lights bores the earth. A second rig toils at a site almost a mile away.

"We don't need as many of these sites all clustered close together," said Belitskus.

John Hanger, secretary of the Pennsylvania Department of Environmental Protection, wants to keep well sites 8,000 to 10,000 feet apart.

Kathryn Klaber, president of the Marcellus Shale Coalition, an industry trade group, declined to endorse any "one-size-fits-all" regulation but noted that improving technologies allow drillers to cluster wells.

Belitskus traveled to Elk County in August with Allegheny Defense Project forest monitor Cathy Pedler to update the group's records. They're concerned about water withdrawal applications filed with the Susquehanna River Basin Commission that show EOG Resources, a Texas company drilling on Boone Mountain Road, plans to drill 500 wells over four years.

"And that's just one company in one region," Belitskus said.

Anthony R. Ingraffea, a professor of civil and environmental engineering at Cornell University, began studying hydraulic fracturing three decades ago. He, too, worries about its impact in forests.

"Bird species disappear. Invasive plant species appear," Ingraffea said. "... And, of course, there are the inevitable spills.

"... Statistically speaking, no industry is perfect. When you have hundreds of thousands of potential incidents, there will be hundreds of incidents, or more."

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